According to the IFS, £37.5bn must be cut from the public spending budget between 2011 and 2013/14.

Already identified by the Chancellor has been:

• £11bn in efficiency savings
• £3.4bn saved in tighter control of public sector pay
• £1bn saved in reforms to public sector pensions
• £5bn in cuts to lower priority budgets
• £1bn additional efficiency savings in 2013/14

Shortfall: Around £15bn.

Because the Chancellor pledged to maintain spending in certain areas such as schools and health, the corresponding cut to remaining departments will be correspondingly large, the IFS claims.

They estimate cuts of some £22.9bn to other departments by 2012/13 and they say Defence, Higher Education, Transport and Housing are in the firing line. This means a 5.6% cut to departmental spending limits per year on average.

Director of the IFS, Robert Chote said: “The Treasury’s core diagnosis of our present fiscal problem is that theeconomy and the value of our houses and financial wealth are going to be significantly and permanently smaller in future than it thought in Budget 2008.

“In the absence of offsetting policy measures, this permanently increases public spending and reduces tax revenues as a share of national income, significantly increasing the structural budget deficit - in other words the gap between tax revenues and spending that will remain even after the economy has recovered. This would put upward pressure on public debt,” he said.

“Once we take into account the announcements of real spending growth on the frontline NHS, schools and Sure Start for 2011-12 and 2012-13, other departmental budgets are likely to need to shrink by 5.6% a year on average over the three years of the spending review - a little under 16% in total.

“The bottom line is that the targeted spending on priority areas is paying paid for not just by higher taxes, but by a severe squeeze elsewhere in the public services,” he said.

(Source: nce.co.uk)